Quick question for buying mobile home park

My business partner and I have flipped one mobile home so far. Our goal was to try to do Lonnie Deals and level up our cash flow until we could buy a mobile home park. Turns out there is a mobile home park for sale in our area. It has 19 mobile homes, 3duplexes, and a four plex. All are rented and the seller says the cash flow is $100,000 a year. Asking price is $350,000.

I have heard that commercial property is not bought the same way as single family homes, and loans are given based on the cash flow.

My business partner and I have really bad credit and no cash.

Is there a way to make this park our cash cow?

Squeeky,

I admire your desire to acquire but…

If you have NO credit, NO cash, and NO experience running rental property, the most likely scenario is the seller will hold financing for you at the full rate and high interest as a lease with option to buy the park. After you do a lot of work to make the portfolio better, you will be exhausted and discover it was not worth the asking price, you are losing money and you will give it back before or after the lease is up.

VERY IMPORTANT: What does he mean by cash flow?

Gross or net? If you think it is net; take home; walk away with before taxes; the following is an evaluation based on $100,000 net cash flow:

Lets look at the numbers:
19 MoHos
06 units of duplexes
04 units in fourplex
29 total units

$100,000 divided by 29 is $3,448.28 per unit/yr. divided by 12 mos. is and average NET INCOME (net cash flow) of 287.36/unit/mo

Assuming all mobile homes are park-owned and a 50% expense ratio for all units involved (typical), then the average rent per each unit in the portfolio must be double the net income = $574.71/mo.

Is he renting these units for $575/mo? If so, good. But here’s the rub. He probably has no mortgage payments on anything. So, if you want that same $100,000 per year cash flow you have to buy the whole portfolio for an all-cash price (which you said you don’t have). Or raise all the rents on day one by the mortgage payment on a no money down deal for $350,000. That would be about $3,377.58/mo. for a 20 year amortization at private money interest rate of 10% an additional $116.47/ mo/unit. Can you rent each of these units for an average of $691/mo.? There has got to be tremendous demand there for you to raise the rent by $117 for this to happen with no glitches. You would likely lose all your tenants to cheaper housing elsewhere.

Alternatively, you don’t raise the rents (they must avg. $575/mo.) and have a $59,500/yr income if all goes well AND he is willing to do the deal with you.

If it is $100,000 GROSS CASH FLOW, you will net $789.09 per month to be split between the two of you. Your call.

Steve